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The IBR is a publication of the Indiana Business Research Center at IU's Kelley School of Business

Kokomo forecast 2017

Dean, School of Business, Indiana University Kokomo

This article provides a short synopsis of several key pieces of data that can be used in judging the economic well-being of the Kokomo region. Indiana University Kokomo serves a diverse 14-county region,1 and includes communities very dependent on heavy manufacturing, as well as other areas that are far more agriculturally dependent. This article will touch on key issues that affect the overall region, while placing greater emphasis on the Kokomo and Howard County areas.

Limited gains in employment

The seasonally unadjusted unemployment rate within Howard County has fluctuated considerably over the course of the last 20 months (see Figure 1). As was the case in both 2015 and 2016, the unemployment rate was noticeably higher during the first quarter, but diminished considerably over the remainder of the year. The drop from August to September 2016 was, in fact, quite significant.

Figure 1: Unemployment rates

graph

Note: Data are not seasonally adjusted.
Source: STATS Indiana and Hoosiers by the Numbers, using U.S. Bureau of Labor Statistics data

However, when making year-over-year comparisons between 2015 and 2016, the unemployment rate has only made minimal changes. While not showing the extreme fluctuations seen for Howard County, the Indiana unemployment rate depicted in Figure 1 does display much the same pattern, consistently being 0.1 to 0.3 percentage points lower than that for Howard County. In comparison to the national data, Howard County and the state of Indiana generally saw unemployment rates consistently lower than that of the nation as a whole.

Within the 14-county region, similar seasonal fluctuations were found—higher levels during the first quarter of the year and then a general decline throughout the remainder of the year. County-to-county comparisons revealed considerable differences between the unemployment rates across the region.

Howard County’s unemployment rates were among the highest one-third within the region. Several counties, noticeably Grant and Madison—and Miami to a limited extent—also had higher unemployment rates than those found elsewhere within the region and were anywhere from 0.2 to 0.5 percentage points higher on average than those for Howard County.

At the same time, Carroll, Clinton, Hamilton, Tippecanoe and Tipton counties found their unemployment rates considerably lower. In some instances, the difference represented approximately half a percentage point. However, the true exception was Hamilton County, which was nearly 1.5 percentage points lower. The counties with the lower rates tended to be more rural and dependent on agriculture; though clearly, that is not the case for Hamilton County, which is part of the Indianapolis metropolitan area and has seen considerable economic growth in both goods-producing and, especially, service industries.

Industry gains

Total nonfarm employment within Howard County has seen a net increase of 300 jobs from September 2015 through September 2016. This net increase, however, reflects a gain of 600 jobs in goods-producing industries and a loss of 300 jobs in the service sector. Within the goods-producing sector, manufacturing provided the majority of the increase. Slight increases were also seen in trade, transportation and utilities and retail trade. The losses in the service sector were isolated to governmental sector jobs, excluding educational services. Given the substantial wage differentials between manufacturing and service sector jobs, the net increase of 300 jobs for the region carried with it a far more significant impact on the region’s net income.

Agricultural production

As mentioned earlier, a significant portion of the 14-county region served by IU Kokomo is rural and dependent on the success of the agricultural sector. In particular, this portion of the state is primarily focused on corn and soybean production. Table 1 shows that Indiana's 2016 agricultural production experienced a sizable increase over 2015 levels. Contrary to 2014 when growing conditions were ideal, many parts of the state received extensive rainfall in 2015, and flooding was rampant. As such, corn acreage planted and harvested were down approximately 5 percent each, while yield per acre and total production were down nearly 25 percent.

Table 1: Indiana crop statistics

  2014 2015 2016*
Corn
Planted (1,000 acres)  5,900  5,650  5,600
Harvested (1,000 acres)  5,770  5,480  5,410
Yield per acre (bushels)  188.0  150.0  177.0
Production (1,000 bushels)  1,084,760  822,000  957,570
Soybeans
Planted (1,000 acres)  5,450  5,550  5,700
Harvested (1,000 acres)  5,440  5,500  5,680
Yield per acre (bushels)  55.5  50.0  59.0
Production (1,000 bushels)  301,920  275,000  335,120

* The 2016 data represent the forecast from October.
Source: “Indiana Agriculture Report,” U.S. Department of Agriculture’s National Agricultural Statistics Service, October 2016

The 2016 estimates show that while corn acreage fell slightly further, yield per acre and total production have rebounded nicely. While not at the record levels of 2014, certainly corn production considerably improved. Meanwhile, soybean production in 2016 is estimated to not only exceed 2015, but also exceed that from 2014, which was seen as a highly successful year. In terms of acreage, planted and harvested acreage in 2016 are expected to be 3 percent higher than in 2015 and 5 percent higher than in 2014. However, soybean yields and total production are expected to be nearly 20 percent above 2015 levels.

While production and yield are critical factors to agricultural well-being, so too are the prices these crops bring at market. The October 2016 "Indiana Agriculture Report" suggests that in comparison to August 2015 prices, corn prices are down approximately 9 percent from $3.90/bu to $3.54/bu. On the contrary, soybean prices have been relatively stable. While prices fell from July to August 2016, they remain approximately 3 percent higher per bushel in comparison to August 2015. Since many of the counties within our region are heavily dependent on agricultural output and the resulting income, 2016 promises to present some financial windfall following the financial challenges of last year. Unfortunately, detailed county-level data for 2016 won’t be released until February 2017.

Forecast

As mentioned in the 2016 forecast from last year, the state and the region are already operating at a level that most economists would describe as full employment. The overall forecast for the region for 2017 suggests very modest increases in the level of employment. Strong dependence on the automobile industry leaves the region (and the state) heavily dependent on the economic health of the broader U.S. economy, as well as that of much of the rest of the world. While this past year has seen some slight employment growth in automobile transportation manufacturing, the gains have been small relative to total employment in the industry.

Locally, the construction and trades sectors are likely to see a slight increase in employment over the next year from two main sources. Efforts continue in repairing and rebuilding from the devastation caused during the outbreak of tornados on August 24, 2016, that swept through Kokomo. The damage to several businesses, homes and two major apartment complexes was extensive and repairs to these businesses and dwellings are likely to extend well into 2017. Furthermore, plans to build two large apartment complexes within Kokomo will also support employment within the construction industry and the related trades.

While highly unpredictable, weather patterns are certainly a major driver of the well-being of the agricultural sector. Such weather patterns tend be regional rather than global. Some parts of the country may suffer weather extremes that limit production, whereas other parts of the country may experience ideal conditions. The growing level of crop production and competition outside the U.S. also is a major driver. The agricultural sector is highly dependent upon the well-being of the rest of the world, due in large part to the dependence on agricultural exports. Recently, large purchases of products from China have helped support market prices. However, worldwide economic conditions leave such exports subject to uncertainty.

Conclusion

Clearly, the overall state of the U.S. and world economies will play a major role in local employment and economic output. The outcome of the 2016 elections will likely play a crucial part in the domestic and international environment. The true impact of such, however, may not be felt in any significant way in the short run. However, once the new president and congressional members are seated in early January, the longer-term implications for both domestic policies and international relations will begin to be clearer.

References

Notes

  1. The 14-county service region includes Carroll, Cass, Clinton, Fulton, Grant, Hamilton, Howard, Madison, Miami, Pulaski, Tippecanoe, Tipton, Wabash and White counties.